Estate Planning By Example: Walt Disney’s Will

If you are curious about wills of the rich and famous, and you have access to the Internet, set your browser to http://www.value.net/Emarkwelch/wills.htm. California probate attorney Mark Welch has posted many interesting wills that can be viewed and downloaded, including that of Walter E. Disney. Although Disney’s estate plan is more than 30 years old, many of its features are still instructive today.

As a preliminary matter, the will nominates a bank and two individuals (Disney’s wife and a lawyer) to serve as coexecutors. In the typical case where coexecutors are named to settle an estate, the bank inventories assets, handles probate filings and manages the estate; the individual coexecutors offer advice whenever decisions involving an exercise of discretion are needed. The Disney will also explicitly recognized the possibility that the nominated individuals might be unable to fulfill the obligations of executorship because of death, disability or simple unavailability. In that event, the will appoints the bank as sole executor.

The Distribution Plan

The bulk of the Disney estate was divided equally between a charitable trust--mainly for the benefit of the California Institute of the Arts--and a flexible family trust.

The purpose of the family trust was to make significant financial resources available to Mrs. Disney and their two daughters--and to do so in a way that would not expose the trust assets to further estate taxes before these assets ultimately pass to the Disney grandchildren or their children.

Thanks to California’s community property law, presumably Mrs. Disney already possessed about half of the fortune that her husband built with the help of Mickey, Donald and Goofy and all the other denizens of Disneyland. In all likelihood, she wouldn’t need any additional money. But then again, anything can happen. So Walt Disney’s will created a trust from which she is to receive as much or as little as she required for her "health, support and maintenance." That is, in any year she could receive: all the trust’s income; all the income plus as much trust principal as needed; only part of the trust’s income; none of the trust’s income.

To the extent that the trust income is not needed by Mrs. Disney, the trustees were authorized to distribute it to the daughters, Diane and Sharon, to the daughters’ children or to accumulate it. This concept is called a "sprinkling trust."

At Mrs. Disney’s death the trust is to split into two equal shares, one for each daughter. Each is to receive at least half the annual income from her share. The other half of that income is to be sprinkled among the daughter and her descendants. Ultimately, after the deaths of both daughters, the Disney family trust is to be divided among the grandchildren in equal shares. If any grandchild is no longer living, his or her children will divide that share.

Tax Savings From Sprinkling Trusts

Many family trusts now contain provisions for sprinkling income among the children or grandchildren rather than distributing all income to the surviving parent. With this flexibility, family income taxes may be reduced and gift taxes minimized. Here’s why:

If all trust income goes to the surviving spouse, all the income is subject to federal income tax at the parent’s presumably higher federal income tax rates--perhaps 36 percent or 39.6 percent. If some of that income goes directly to children or grandchildren who are lower-bracket taxpayers, more income after taxes stays in the family.

Sprinkling income also avoids gift tax problems. Even if the trust’s income grows over the years, and the children receive more than $10,000 of trust income ($10,000 being the annual limit on tax-free gifts to a single individual per giver), no one will be charged with making taxable transfers for gift tax purposes. With the Disney family trust, for example, this means that Mrs. Disney’s exemption from federal estate and gift taxes will remain intact, so she can use it to shelter other gifts or bequests; so too, can the daughters.

By "sprinkling" income, rather than pixie dust, the master of Mickey Mouse and the Magic Kingdom created a flexible trust plan to protect his family. With careful planning, so can you.